Prediction #1: U.S. Dollar Bears Will Remain On the Run in 2012

Since its March 2008 low the U.S. Dollar is up 13% against a basket of the world's most widely held currencies, including the yen, sterling, franc, loonie, krona, and of course the beleaguered euro.

How is this a problem for portfolio manager Axel Merk, the self described "Authority on Currencies"? After all, according to Merk's written after-the-fact letters he claims to have traded out of and back into the euro just in time to surf its wild gyrations.

Merk moved his fund management business to California a number of years ago, where he has been beating a steady 'demise of the U.S. dollar' drumbeat ever since. This past year Merk Funds even took to deploying amusing anti-Dollar cartoon propaganda while routinely touting the superiority of the euro over the U.S. dollar.

Continue reading the full article at Seeking Alpha here.

Counting Down the Return of Ambrose Evans-Pritchard

On sabbatical since March, the chronicler par excellence of the sovereign debt crisis returns in a few days, perhaps just in time for default chaos.

He can be a bit hyperbolic, but I confess to having missed his hyperbole and often (though not always) prescient calls.

Video: Translation of Hillary's Egypt Briefing (Spoof)

Video: Exporting Propaganda - China's New Charm Offensive

Spin, manufactured in China

A friendly, gentle depiction of the People's Republic may soon be coming to Americans and Europeans via their television screen and newspapers (see today's International Herald Tribune and its cleverly disguised paid-for-but-looks-like-news insert) .

Yes, this bought and paid-for China is the same country which has banned its citizens from using Facebook, Twitter, YouTube, and most recently Skype. As noted by the NY Times, China's rulers are "obsessed with the threat posed by the Internet".

From the article:

Li Changchun, a member of China’s top ruling body, the Politburo Standing Committee, and the country’s senior propaganda official, was taken aback to discover that he could conduct Chinese-language searches on Google’s main international Web site. When Mr. Li typed his name into the search engine at google.com, he found “results critical of him."

A Chinese person with family connections to the elite (said) that Mr. Li himself directed an attack on Google’s servers in the United States 

In the wake of the overthrow of Tunisia's government, other dictatorships (e.g., Mubarak's monarchy in Egypt) are now following China's lead.

I can only imagine how the Politburo Standing Committee's discussion over China's international image problem went down: "China is the world's greatest exporter, and propaganda works pretty well here, so why not package the two together?"

Economic Newspeak: Has Yale's Robert Shiller Seen the Light?

"To me...part of the process of pursuing the inexact aspects of economics is speaking honestly to the broader public, looking them in the eye...and then searching one’s soul to decide whether one’s favored theory is really close to the truth."

-Robert Shiller, Project Syndicate Op-ed January 20, 2011 

Yale Professor Robert Shiller

The above words come from the same Professor Shiller who just a few months ago brazenly argued that our government, when engaging the broader voting public on the "complexities" of 'necessary' bailouts, should employ economic propaganda.

Yves Smith over at Naked Capitalism also took exception when Shiller's November op-ed came out, characterizing the Yale Professor's argument as a justification for Orwellian newspeak.

Shiller previously argued that terms like 'bailout' should be recast as ‘orderly resolutions’ so as to make sure the voting public 'gets it'.

From Shiller's November piece:

When life is smooth, people tend to remain complacent, reflecting confidence in the economy. In times of crisis, such confidence is also vital, even if government can’t absolutely guarantee that it’s justified. 

...well-thought-out framing packages can work. They can help sell crucial intervention packages to people who don’t fully understand the financial system’s complexities.

As I noted in my response to Shiller:

In other words, Shiller is making the argument that it's not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller's recommendation even work?

To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed's actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilites is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke's comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence. 

What made Shiller's November words all the more disheartening is that they came from from one of America's most respected and credible academic economists. Professor Shiller hails from Yale University, and he is both a widely read author and creator of the influential Case-Shiller Home Price Index. While Shiller was not one of the academic economists skewered by Charles Ferguson in his excellent documentary film Inside Job, his November remarks certainly made him a deserving target of popular criticism.

Here's to hoping Shiller's more recent reflections indicate an about face in his thinking along with a commitment to speaking clearly and truthfully on economic matters, like taxpayer funded bailouts, with the general public.

Guest Post: Taking Stock of WikiLeaks

By George Friedman, STRATFOR

Julian Assange has declared that geopolitics will be separated into pre-“Cablegate” and post-“Cablegate” eras. That was a bold claim. However, given the intense interest that the leaks produced, it is a claim that ought to be carefully considered. Several weeks have passed since the first of the diplomatic cables were released, and it is time now to address the following questions: First, how significant were the leaks? Second, how could they have happened? Third, was their release a crime? Fourth, what were their consequences? Finally, and most important, is the WikiLeaks premise that releasing government secrets is a healthy and appropriate act a tenable position?

Let’s begin by recalling that the U.S. State Department documents constituted the third wave of leaks. The first two consisted of battlefield reports from Iraq and Afghanistan. Looking back on those as a benchmark, it is difficult to argue that they revealed information that ran counter to informed opinion. I use the term “informed opinion” deliberately. For someone who was watching Iraq and Afghanistan with some care over the previous years, the leaks might have provided interesting details but they would not have provided any startling distinction between the reality that was known and what was revealed. If, on the other hand, you weren’t paying close attention, and WikiLeaks provided your first and only view of the battlefields in any detail, you might have been surprised.

Video: The Daily Show on Printing Money

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Play the ECB's New Monetary Policy Game

The European Central Bank's previously released web-based game (ironically titled 'Euro Run') must have been a smashing success because it has created yet another game. This latest one allows you play armchair central banker; a virtual Ben Bernanke or Jean-Claude Trichet so to speak.

Question: which of the following would you rather have your central bank investing time/energy in and printing money to pay for:

a. recently released comic book created by the New York Fed
b. the ECB's above video games
c. none of the above

Federal Reserve Public Relations in the YouTube Age

The Federal Reserve and its policy of quantitative easing (aka printing money) both have serious image problems. Significant controversy and disagreement has been generated recently by the Fed's QE2 program, resulting in an ongoing communications battle between the Fed's advocates and critics.

This amusing cartoon video, which 'explains' quantitative easing and the current economic situation in a rather simplified (and in some instances erroneous) fashion, has already generated nearly 3 millions views on YouTube. The video's appeal is undeniable: we were all children once upon a time and are practically hardwired to trust cute, entertaining cartoon characters.

Meanwhile the Federal Reserve is hardly sitting idly by. Its New York branch has taken a slightly more high-brow approach with this comic book, a medium typically reserved for pre-teens and up. Like the cartoon, the comic book attempts to explain how the Federal Reserve system and monetary policy work to someone unfamiliar with macroeconomics.

The comic book builds on Ben Bernanke's 60 Minutes television interview and Washington Post QE2 op-ed in that both reflect the Fed's understanding that it needs to engage in more public outreach. The historically secretive Fed correctly recognizes that business as usual won't work anymore.

The comic book also demonstrates the Fed's understanding that to get its message across it will need to employ a media strategy that goes beyond its usual menu of press releases, speeches, and well-timed leaks to news reporters like the WSJ's John Hilsenranth.

But how effective are the Fed's new openness and media strategy?And at what point does the Fed's communication cross the propaganda line?

Some, including influential Yale Professor Robert Schiller, argue that government policies should be purposely shrouded in what is effectively 'Newspeak'. For example, Schiller makes the case that "bailouts" should now be called "orderly resolutions". This framing, Schiller states, can help to ensure that the public 'gets it' when the economic going gets tough.

Perhaps more so than at any other point in its history, the Federal Reserve is under the public spotlight. Discussion of putting an end to the Fed's dual mandate of price stability and full employment is openly being considered.

Whether or not the Fed's mandate should or will change is an open question. However, it appears unlikely that Fed secrecy, as it has been historically been practiced, will survive.

Is Economic Propaganda Ethical?

Ever wondered why government officials use fancy sounding terms like 'quantitative easing' instead of the much easier to understand 'printing money' when they both effectively mean the same thing?

Yale Professor Rober Shiller, who correctly predicted the housing market crash, weighs in on this topic with a piece in this weekend's NY Times. In the article he describes how to handle the inevitable next financial crisis.

His rather surprising answer?  By using the right vocab.

In what so far as I can tell is a first by an esteemed member of the academic community, Schiller goes on public record rationalizing the use of propaganda by government officials.

Shiller states:

"in times of crisis...confidence (expressed by the government) is also vital, even if government can’t absolutely guarantee that it’s justified...for people who don’t fully understand the financial system’s complexities "

In other words, Shiller is making the argument that it's not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller's recommendation even work?

To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed's actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilites is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke's comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence.

Are 'bailouts' and 'printing money' hopelessly beyond the general public's understanding, as Shiller believes? And instead of coming up with the proper vocab, shouldn't officials and financial experts be working on how to prevent the next financial crisis?

David Brooks and Dick "Buy Lehman" Bove Perpetuate TARP Profitability Myth

David Brooks

Some myths just won't die. And if repeated often enough they can become legend.

Banking analyst and regular CNBC talking head Dick Bove is doing his part to keep the TARP was 'profitable' myth afloat. Joining this cause is NY Times columnist David Brooks, who on a recent episode of Charlie Rose made it abundantly clear that accounting is not his forte. Like Bove, Brooks mistakenly believes that TARP is 'profitable'.

To my knowledge Brooks, who based on appearances could easily be mistaken for an accountant, is no financial expert. So perhaps he can be forgiven for sending his proselytizing mouth into terra incognita. Bove, on the other hand, should definitely know better.

As discussed previously here, here, and here, the only way to claim that TARP is profitable is by viewing it in isolation of the entire government bailout, which in addition to TARP includes GSE conservatorship, Fed asset purchases, etc. Bailing out Fannie and Freddie alone could wind up costing taxpayers trillions, thereby swamping any gains seen by TARP.

The results of TARP are intimately connected and influenced by the other government bailout programs. Claiming that the relatively small TARP bailout sliver is profitable is intellectually dishonest and emblematic of the accounting shenanigans which continue to distort the balance sheet picture of our financial system and government.

Is there a political motivation behind the repeated claims of TARP profitability? Establishing this perception would certainly make the the banking sector look better in the eyes of taxpayers. It would also cast a more favorable light on the massive government intervention initiated by 'Government Sachs' and Treasury Secretary Hank Paulson and then furthered by the Obama administration.

Unfortunately this notion of TARP profitability seems to have gained a toehold in the mass media. As such we can expect to see future government bailouts justified on myopic, misleading accounting.

Here We Go Again: More TARP was "Profitable" Hooey

We're coming up on Wall Street bonus season, rumored to be another record setter. So it shouldn't be too big a surprise to see more propaganda being pumped out on the "profitability" of TARP.

On this blog I generally strive not to repeat myself. However, I hope you'll agree that dispelling the reoccurring attempt to foster a myth of TARP "profitability" is worth making an exception. So here goes: it is intellectually dishonest to try and disentangle the "profits" from TARP from the total government bailout.

The real shame about this particular piece of "analysis" is its source, Bloomberg, which had been doing yeoman's work on challenging Fed secrecy and reporting the true cost the entire government bailout. Check this video out for a previous take from the very same Bloomberg on what the entire government bailout has cost taxpayers. (Note to Bloomberg's Editorial Department: you guys need to get your staff on the same page!)

Oh when of when will we cease indulging the fiction that Too Big Too Fail banks are private enterprises?

True Cost of Government Bailouts

Watch the full episode. See more Need To Know.

Today's Hooey: Claiming Bank Bailouts Are "Profitable" for Taxpayers

CNBC, Reuters, and other media outlets trumpeted Keefe, Bruyette & Woods claim that bank bailouts are profitable for the U.S. government (and hence the U.S. taxpayer).

If it weren't for the report's intellectual dishonesty this news would have made for a nice political headline and taxpayer feel good story.

The glaring problem with Keefe's Mr. Fred Cannon's "profitable" conclusion is that he arrived at it only by ignoring all the other government bailouts during the financial crisis.